You Have Options for Funding POS as a Service

The thought of self-funding and limiting cash flow or borrowing and amassing debt may be enough to prevent you from selling as a Service solutions all together. But there is another option.

One of the biggest drivers of Point of Sale as a Service (POSaaS) is that merchants don’t have to make an upfront investment in the system. POSaaS bundles everything the merchant needs into one package — POS hardware, software, installation, and services — for one, budget-friendly monthly fee.

Andrew Warker, Vice President of CCA Financial, comments, “For the retailer or restaurant, margins are thin, and their industries are competitive. Many don’t have the capital to invest up front into upgrading the point of sale — and trying to get it approved by the CFO is difficult.”

“POS as a Service is an OPEX, not a CAPEX,” he explains. “It’s much easier to get it approved, and it gives merchants flexibility. A lot of companies don’t want to take the risk that the system they buy will be outdated in a few years if regulatory requirements or new tech forces a change. POS as a Service gives them the opportunity to completely revamp the system in a few years. It’s an easier pill to swallow.” For the VAR or MSP, it’s often also an easier sell.

But, POS as a Service creates a new challenge: How do you fund the system if the customer isn’t paying up front?

The thought of self-funding and limiting cash flow or borrowing and amassing debt may be enough to prevent you from selling as a Service solutions all together. But there are other options — working with your distributor or working with a financial services company.

Funding POS as a Service through a Financial Services Company

Several financial services companies offer programs designed specifically for IT solutions providers offering solutions as a Service.

Warker says with CCA, for example, the VAR or MSP brings in CCA after they identify an opportunity. CCA contracts with the end user directly, packaging all of the elements of the solution into single monthly payments over a defined term, usually of 24 or 36 months.

CCA funds all of the POS terminals, peripherals, software, and additional solutions or services such as encryption and kitting, and pays the solution provider up front. If Software as a Service is included, CCA will pay the vendor monthly and remit residuals to the VAR or MSP, creating a recurring revenue stream.

It’s also possible to have a private label program, where it appears that the MSP or VAR, not CCA, is collecting the monthly subscription fee from the client.

Selling POSaaS Risk-Free

One of the most significant advantages to working with a financial services company to provide POS as a Service is the dramatic reduction in risk to the VAR or MSP. In the case of CCA, the financial services company assumes the risk.

“When a restaurant or retail chain is looking to replace all of their POS equipment, the deal size can get very large very quickly,” says Warker. “Many companies just don’t want to take on that size of a transaction — maybe $1 million or more — and assume that risk.”

How an as a Service Program Differs from a Lease

Warker says although there are similarities between an as a Service program and a traditional POS hardware lease, there are a number of differences:

  • As a Service includes other costs: In addition to hardware, it covers software and services. Warker says hardware is often less than half of the total transaction.
  • Shorter term: To accommodate merchants’ need for flexibility when it comes to their IT systems, the programs are shorter. Warker points out that this is also an advantage for the VAR or MSP: “If a company buys a system outright, they use it for an average of seven years. As a Service dramatically shortens the refresh cycle. You could potentially double your income in the same period of time.”
  • It provides upfront and recurring revenue: Because cloud solutions are billed differently, you will receive lump-sum funding to cover hardware purchases and recurring revenue from monthly billing.
  • It’s often more flexible: Your financial services partners may give you more options for continuing or changing terms at the end of a contract.

Funding Your POSaaS Business is Possible

Warker says that VARs need to make sure they’re partnering with financial services companies that are experienced, financially stable and will hold the program internally, not sell it off. You also need to ensure that the company has the flexibility to fund all elements of the solutions you provide.

Warker says a key takeaway for VARS and MSPs is: “Funding for POS as a Service is available, and it can be done. A lot of people aren’t familiar with these types of programs or understand the benefits of working with a company that can take all of the elements of POS as a Service and put it together for them. We’re the financial glue that holds your deal together.” 

The former owner of a software development company and having more than a decade of experience writing for B2B IT solution providers, Mike is co-founder of XaaS Journal and DevPro Journal.